On April 16, 2025, the U.S. Tax Court ruled (Decision) against a hedge fund manager in its challenge of an IRS judgment finding that basket options it had purchased from Royal Bank of Canada and Deutsche Bank were taxable on an annual basis and that the manager was, for tax purposes, the owner of the basket securities. The manager, which filed for bankruptcy in April 2024, had made large profits by trading on the securities. It had unsuccessfully argued before the IRS that those profits were long-term capital gains, and hence it was appropriate to defer taxes on them at least until the exercise or termination of the options. The Tax Court rejected that argument, along with the manager’s claims to have relied on legal counsel regarding its trading activities. Given how common it is for hedge funds to use leverage, and to make use of basket option contracts, the ruling against the manager has implications for the private funds space and the direction of tax policy and enforcement. This article presents a summary of the Decision as well as analysis from legal experts. See “Hedge Funds Are Required to Disclose Basket Option Contracts and Basket Contracts” (Aug. 6, 2015).